Government Contacting - FAR Part 44 - Subcontracting Policies and Procedures

Please join Jennifer Schaus & Associates every Friday in 2020 for a complimentary series. See the full recording on our YouTube Channel (https://www.youtube.com/watch?v=36eRQkU2X_I). For more information about our federal contracting services please visit http://www.Jenniferschaus.com or contact us at 202-365-0598. Win more federal government contracts!

1. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] Join us in this complimentary webinars series as we uncover each Part of The FAR (Federal Acquisition Regulations) so you can better understand the rules of the (federal contracting) game.

2. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] The FAR, or Federal Acquisition Regulation is the official rule book for how the Federal Government purchases. It sets uniform policies and procedures for the federal acquisition and procurement process. Webinars are complimentary and recorded. NOTE: Recordings are posted to our website and YouTube channel.

3. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] The National Veteran Small Coalition (NVSBC) is the largest non-profit trade association in the country representing veteran and service-disabled veteran-owned small business in the federal marketplace as prime and subcontractors. NVSBC provides networking, match-making, coaching, and training opportunities for members. Please visit: www.nvsbc.org PARTNER:

4. Get “FAR” Sighted In 2020 Sponsors: J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected]

5. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] About Us: Washington DC Based Professional Services For Federal Contractors - GSA Schedule - SBA 8(a) Certification - Proposal Writing & Pricing - Contract Admin Clients: Products / Professional Services / Software

6. Reach Federal Government Contractors & Federal Government Advertise With Us 21,120+ Subscribers!! [email protected]

7. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] About Our Speaker: Chase Kunk Managing Partner CPSR Practice Area Lead Capital Edge Consulting, Inc. [email protected] www.capitaledgeconsulting.com

8. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] FAR PART 44 Subcontracting Policies And Procedures Link: https://acquisition.gov/content/part-44-subcontracting-policies-and-procedures October 16, 2020

9. Why is FAR Part 44 so important? (44.000(a)) It is the regulatory implementation of a public law pertaining to advance notification and consent to subcontract 10 U.S.C. 2306 / 41 U.S.C. 3905 Establishes the contractor purchasing system review (CPSR) in federal regulation Prescribes FAR 52.244-2, Subcontracts, into certain prime contracts In addition to making AN&C contractually operative, FAR 52.244-2( i ) reserves the USG’s right to perform a CPSR as set forth in FAR Part 44

10. How is FAR Part 44 Organized? Advance Notice and Consent (AN&C) to Subcontract (44.2) CPSR (44.3) Subcontracts for Commercial Items (44.4)

11. Other Impacts Realized by FAR 44? Waives the AN&C requirements for prime contractors performing a FAR Part 12 prime contract (44.000(b)) Substitutes consent requirements for contracting officer (KO) written authorization if procuring from USG sources under FAR Part 51 (44.201-1(d)) Designation of specific subcontractors during contract negotiations does not in itself satisfy the requirements for AN&C under FAR 52.244-2. However,… If the KO determines that the AN&C requirements were satisfied for certain subcontracts evaluated during negotiations, he/she shall identify those subcontracts in 52.244-2(j). (44.202-1(c)) Get your contracts manager to cause the KO to insert those subcontracts into the FAR 52.244-2(j) text box

12. Key FAR Part 44 Definitions Approved Purchasing System : A contractor's purchasing system that has been reviewed and approved in accordance with this part. The review provides the administrative contracting officer (ACO) a basis for granting, withholding, or withdrawing approval of the contractor's purchasing system. (FAR 44.301) CPSR : The complete evaluation of a contractor's purchasing of material and services, subcontracting , and subcontract management from development of the requirement through completion of subcontract performance. Subcontract : Any contract as defined in subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract . It includes but is not limited to purchase orders , and changes and modifications to purchase orders. Subcontractor : Any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor.

13. What qualifies as Consent to Subcontract? Consent to Subcontract: The KO’s written consent for the Contractor to enter into a particular subcontract. (FAR 52.244-2) Writing or written (see “in writing”) (FAR 2.101) In Writing, Writing, or Written: Any worded or numbered expression that can be read , reproduced, and later communicated, and includes electronically transmitted and stored information.

14. Consent to Subcontract Required? Approved Purchasing System? Approved Purchasing? Yes , consent to subcontract is governed by: FAR 44.202-1(a) FAR 52.244-2(d) Did the KO insert instructional text into FAR 52.244-2(d) of the prime contract? KO may impose consent requirement if he/she has determined that an individual consent action is required to protect the USG adequately because of the subcontract type, complexity, or value, or because the subcontract needs special surveillance. These can be subcontracts for critical systems, subsystems, components, or services. Subcontracts may be identified by subcontract number or by class of items (e.g., subcontracts for engines on a prime contract for airframes).

15. Consent to Subcontract Required? Unassessed or Disapproved Purchasing System? Approved Purchasing System? No (e.g. disapproved or unassessed) , consent to subcontract is governed by: FAR 44.202-1(b) FAR 52.244-2(b) & (c) FAR 44.202-1 is more descriptive but not inconsistent with FAR 52.244-2

16. Consent to Subcontract Required? Unassessed or Disapproved Purchasing System? (Cont.) Approved Purchasing System? No (e.g. disapproved or unassessed) , then…: If the prime contract contains FAR 52.244-2, consent is required if : The prime contract is cost-reimbursement, time-and-materials, labor-hour, or a letter contract, and also for unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price prime contracts that exceed the SAT; AND The subcontract is cost-reimbursement, time-and-materials, or labor-hour; OR The subcontract is fixed-price that exceeds — For the DoD, the CG, and the NASA, the greater of the SAT or 5 percent of the total estimated cost of the contract; or For civilian agencies other than the CG and the NASA, either the SAT or 5 percent of the total estimated cost of the contract.

17. Who is Responsible for Consenting to Subcontract? (44.202-1) ACO… Unless procuring contracting officer (PCO) has retained contract administration responsibility or specifically withholds the consent responsibility from ACO delegation.

18. What do I include in the Consent to Subcontract Package? (44.202-2(a))   Did you know the FAR includes question marks? The KO must, at a minimum, review the request & supporting data and consider the following: Is the decision to subcontract consistent with the contractor's approved make-or-buy program, if any (see 15.407-2)? Is the subcontract for special test equipment, equipment or real property that are available from Government sources ? Is the selection of the particular supplies, equipment, or services technically justified ? Has the contractor complied with the prime contract requirements regarding— Small business subcontracting , including, if applicable, its plan for subcontracting with small, veteran-owned, service-disabled veteran-owned, HUBZone, small disadvantaged and women-owned small business concerns (see part 19); and Purchase from nonprofit agencies designated by the Committee for Purchase From People Who Are Blind or Severely Disabled (41 U.S.C. 8504) (see part 8)?

19. What do I include in the Consent to Subcontract Package? (44.202-2(a)) (Cont.)   The KO must, at a minimum, review the request & supporting data and consider the following (Cont.): Was adequate price competition obtained or its absence properly justified? Did the contractor adequately assess and dispose of subcontractors' alternate proposals , if offered? Does the contractor have a sound basis for selecting and determining the responsibility of the particular subcontractor? Has the contractor performed adequate cost or price analysis or price comparisons and obtained certified cost or pricing data and data other than certified cost or pricing data? Is the proposed subcontract type appropriate for the risks involved and consistent with current policy? Has adequate consideration been obtained for any proposed subcontract that will involve the use of Government-provided equipment and real property?

20. What do I include in the Consent to Subcontract Package? (44.202-2(a)) (Cont.)   The KO must, at a minimum, review the request & supporting data and consider the following (Cont.): Has the contractor adequately and reasonably translated prime contract technical requirements into subcontract requirements? Does the prime contractor comply with applicable cost accounting standards for awarding the subcontract? Is the proposed subcontractor listed as excluded in the System for Award Management (see subpart 9.4)?

21. Are some Consent Packages Inherently Riskier? (44.202-2(b)) Particularly careful and thorough consideration by the KO is necessary when any of the following apply: The prime contractor's purchasing system or performance is inadequate Close working relationships or ownership affiliations between the prime and subcontractor may preclude free competition or result in higher prices Subcontracts are proposed for award on a non-competitive basis, at prices that appear unreasonable, or at prices higher than those offered to the Government in comparable circumstances Subcontracts are proposed on a cost-reimbursement, T&M, or LH basis

22. Consent to Subcontract and/or Purchasing System Approval Limitations (44.203) Consent/System Approval does not constitute a determination of the acceptability of the subcontract terms or price, or of the allowability of costs, unless the consent or approval specifies otherwise. KO shall not consent to the following: Cost-reimbursement subcontracts if the fee exceeds the fee limitations of 15.404-4(c)(4)( i ) Subcontracts providing for payment on a cost-plus-a-percentage-of-cost basis Subcontracts obligating the contracting officer to deal directly with the subcontractor Subcontracts that make the results of arbitration, judicial determination, or voluntary settlement between the prime contractor and subcontractor binding on the Government Repetitive or unduly protracted use of cost-reimbursement, T&M, or LH subcontracts (follow 16.103(c) principles)

23. And what about Advance Notification? As applicable, AN is required to occur before consent but the requirement to provide notice is conditioned on consent, except when FAR 52.244-2 Alternate I or FAR 52.244-4 applies. FAR 44.201-2 Under cost-reimbursement contracts, the contractor is required by statute to notify the contracting officer as follows: Unless the contractor maintains an approved purchasing system, for the DoD, CG, and NASA, 10 U.S.C. 2306 requires notification before the award of any CPFF subcontract, or any fixed-price subcontract that exceeds the greater of the SAT or 5 percent of the total estimated cost of the contract. Even if the contractor maintains an approved purchasing system, for all other civilian agencies, 41 U.S.C. 3905 requires notification before the award of any CPFF subcontract, or any fixed-price subcontract that exceeds either the SAT or 5 percent of the total estimated cost of the contract. This is contractually imposed thru FAR 52.244-2 or Alternate I to FAR 52.244-2: AN is required if consent is required under FAR 52.244-2; or AN is required if FAR 52.244-2 Alternate 1 applies and is triggered

24. Advance Notice and Consent Clause Prescription (FAR 44.204) Prescribes KO inclusion of: FAR 52.244-2 FAR 52.244-2 Alternate 1 FAR 52.244-4, Subcontractors and Outside Associates and Consultants (Architect-Engineer Services) When included in the prime contract, only consent is required when making any substitution to the subcontractors, associates or consultants that were specifically identified and agreed to during negotiations

25. FAR 44.301 - CPSR Objective The CPSR objective is to evaluate the efficiency & effectiveness with which you spend USG funds and complies with USG policy when subcontracting. The review provides the ACO a basis for granting, withholding, or withdrawing approval of the purchasing system.

26. FAR 44.302 - CPSR Eligibility ACO shall determine the need for a CPSR based on, but not limited to, the past performance of the contractor, and the volume, complexity and dollar value of subcontracts. If a contractor's sales to the Government (excluding competitively awarded FFP and competitively awarded FP with economic price adjustment contracts and sales of commercial items pursuant to Part 12) are expected to exceed $25 million during the next 12 months, perform a review to determine if a CPSR is needed . Sales include those represented by prime contracts, subcontracts under Government prime contracts , and modifications.

27. FAR 44.302 - CPSR Eligibility (Cont.) Generally, a CPSR is not performed for a specific contract. The head of the agency responsible for contract administration may raise or lower the $25 million review level if it is considered to be in the Government's best interest. Once an initial determination of the need has been made, at least every 3 years the ACO shall determine whether a CPSR is necessary. If necessary, the cognizant contract administration office will conduct a purchasing system review

28. FAR 44.303 - Extent of Review A CPSR requires an evaluation of the contractor's purchasing system. Unless segregation of subcontracts is impracticable, this evaluation shall not include subcontracts awarded by the contractor exclusively in support of USG contracts that are competitively awarded FFP, competitively awarded FP with EPA, or awarded for commercial items pursuant to part 12. The considerations listed in 44.202-2 for consent evaluation also shall be used to evaluate the system, including the contractor's policies, procedures, and performance under that system. Special attention shall be given to—market research, price competition, TINA compliance in subcontracting, responsibility, debarment, intercompany transactions, CAS compliance in subcontracting, etc.

29. FAR 44.304 - ACO Surveillance of Your System The ACO shall maintain a sufficient level of surveillance to ensure that you are effectively managing the purchasing system. Surveillance shall be accomplished in accordance with a plan developed by the ACO with the assistance of subcontracting, audit, pricing, technical, or other specialists as necessary. The plan should also provide for reviewing the effectiveness of the contractor's corrective actions taken as a result of previous Government recommendations. Duplicative reviews of the same areas by CPSR and other surveillance monitors should be avoided.

30. FAR 44.305-3 - Withholding or Withdrawing System approval The ACO shall withhold or withdraw approval of a contractor's purchasing system when there are major weaknesses or when the contractor is unable to provide sufficient information upon which to make an affirmative determination. The ACO may withdraw approval at any time on the basis of a determination that there has been a degradation of the contractor's purchasing system or to protect the Government's interest. Approval shall be withheld or withdrawn when there is a recurring noncompliance with requirements , including but not limited to: Certified cost or pricing data; Cost Accounting Standards, Advance Notification, or Small Business Subcontracting. When approval is withheld or withdrawn, the ACO shall promptly request the contractor to furnish within 15 days a plan for accomplishing the necessary actions. If the plan is accepted, the ACO shall cause a follow-up review as soon as the contractor notifies the ACO that the deficiencies have been corrected.

31. FAR 44.306 – ACO Disclosure of Approval Upon request, the ACO may inform a contractor that the purchasing system of a proposed subcontractor has been approved or disapproved. If the proposed subcontractor's system has not been reviewed, the contractor shall be so advised.

32. FAR 44.307 – Disclosing CPSR Reports The ACO shall share the CPSR reports and notifications granting, withholding, or withdrawing system approval, to at least: The cognizant contract audit office Contracting activities prescribed by the cognizant agency

33. FAR 44.4 – Subcontracts for Commercial Items C ontractors and subcontractors at all tiers shall, to the maximum extent practicable , are required to incorporate commercial items or nondevelopmental items as components of items delivered to the USG Contractors and subcontractors at all tiers shall not be required to apply to any of its divisions, subsidiaries, affiliates, subcontractors or suppliers that are furnishing commercial items any clause, except those— Required to implement provisions of law or executive orders applicable to subcontractors furnishing commercial items or commercial components; or Determined to be consistent with customary commercial practice for item being acquired. Notwithstanding any other clause in the prime contract, only those clauses identified in the clause at 52.244-6 are required to be in subcontracts for commercial items or commercial components. FAR 52.244-6 implements those aforementioned policies.

34. Final Thoughts: If the Defense Contract Management Agency (DCMA) has cognizance over your purchasing system or if the DCMA CPSR Group will otherwise review your purchasing system, your system will be measured and assessed against DFARS 252.244-7001, Contractor Purchasing System Administration 24 criteria to an “acceptable” purchasing system DCMA CPSR Group: The only team of people within the federal government whose sole job is to perform CPSRs

35. Get “FAR” Sighted In 2020 J Schaus & Associates – Washington DC – PH: 202-365-0598 - [email protected] Thank You For Joining Us! Chase Kunk [email protected] 703-919-1768

36. Get “FAR” Sighted In 2020 Brought To You By: JSchaus & Associates Washington DC PH: 202-365-0598 [email protected]